Sudan election: Is Khartoum stealing South Sudan's oil?

As people vote in the Sudan election, a recent report says that $700 million – perhaps much more – may have been underpaid to South Sudan since a 2005 peace agreement mandated the sharing of oil revenues with Khartoum in the North.

ByScott Baldauf, Staff writerApril 12, 2010

Sudan election: An election official stamps a ballot paper as women vote in the town of Malakal, Sudan. The three-day election – Sudan's first multiparty vote in a quarter century – will be a key indicator of whether Sudan can fend off renewed conflict and humanitarian crisis as it heads toward a 2011 referendum that could bring independence for the oil-producing south.

Finbarr O'Reilly/REUTERS

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Khartoum, Sudan — As Sudanese line up across the country to cast their ballots in the first multiparty Sudan election since 1986, a recent report is bolstering what southern Sudanese leaders have long suspected: that their northern partners in Khartoum have been cheating them out of hundreds of millions in oil revenues.

The report by the Global Witness transparency watchdog in London says that $700 million – perhaps much more – may have been underpaid to the south since a peace agreement mandated the sharing of oil revenues in 2005.

Using oil production figures published by one of the biggest foreign companies producing oil in Sudan, the Chinese National Petroleum Company (CNPC), Global Witness found that the Chinese reported 12 percent higher levels of production in Blue Nile state in 2009 than what the Sudanese government in Khartoum had reported for the same time period.

The findings came soon after a Sept. 2009 report finding discrepancies between 9 percent and 26 percent between government figures and those of the CNPC in 2008.

“It’s impossible to know which figures are correct, the Sudanese government’s or the oil company’s, but it is clear that both cannot be,” says Rosie Sharpe, a campaigner for Global Witness in London. The lack of accurate data could be dangerous, Ms. Sharpe says, particularly between two well-armed rivals who once fought a 22-year civil war that just ended in 2005 with the power-sharing peace agreement. Part of that peace agreement included sharing oil revenues, but five years of shady numbers have done nothing to build trust between the north and south.

“It’s astonishing that you can have a wealth-sharing agreement, with so much money involved, and not to have transparency mechanisms built into the agreement,” Sharpe says. “The discrepancies vary between 9 percent and 26 percent. Let’s look at the conservative end of that range, at 10 percent. $7 billion of oil money has been transferred to the south since the peace agreement in 2005. That’s $700 million that may have been underpaid.”

Will the south secede?

If South Sudan decides to secede from the rest of Sudan in January 2011, as it is allowed to do by the Comprehensive Peace Agreement it signed with the north, it will have the distinction of being the poorest country on earth, with 90 percent of its residents living on less than $1 a day, with one out of every eight children dying before her fifth birthday, and with the highest maternal mortality rate in the world, according to the report.

Oil revenues – which are estimated to be hundreds of millions of dollars every month – should help South Sudan deal with some of these challenges, and the current government of South Sudan derives 98 percent of its budget from oil revenues. But South Sudan is starting from a very low base, with very few trained civil servants, very few schools outside of South Sudan's capital, Juba, and a social service and health-care sector run almost entirely by foreign charities and churches.

Building a country from scratch doesn’t come cheap.

Lion's share of the oil

The good news for South Sudan is that it would end up with the lion’s share of Sudan’s oil after a secession, with 75 percent of the country’s oil reserves within its boundaries, and 10.3 million barrels out of a total 13.3 million barrels nationwide pumped out of oil fields in South Sudan per month, according to Sudanese Ministry of Finance figures for June 2009.

But as a landlocked country, South Sudan has no way to get that oil to market, so it would still need to use piplelines through the north up to Port Sudan, and pay the north royalties for the use of those pipelines.

“When the South secedes they will take most of the oil with them, and the northern economy will collapse,” says Ahmed Sabiel, a risk analyst in Khartoum. “Right now, 92 percent of foreign investment comes to Khartoum, but it will shift to Juba.”

“This is a real problem because the cost of running the government in the North is huge,” Mr. Sabiel says. “We have 250 ministers. We have more than 90 percent of the civil servants in Sudan. And nobody in Khartoum is thinking about it. The north lacks leadership, it lacks vision, and soon, it will lack oil revenues.”

Not everyone shares such a dark view.

One senior foreign diplomat, based in Khartoum, says that the north will still have oil fields well within its boundaries that are not subject to the 2005 peace agreement, and that much of the foreign investment will be reluctant to head to Juba until the southern government can start to prove itself to be capable of governing.

“It will cost $2 billion to $4 billion to build a pipeline to Mombasa [on neighboring Kenya's coast], and it will take four or five years to build it,” says the diplomat, speaking on condition of anonymity. “So for now, they’ll have to ship out their oil through the north, and they’ll have to learn to get along with Khartoum. Would you invest in a country that has no civil service, that has no infrastructure, and where there is a profound problem of corruption?”